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entity and its principals. Here, petitioner must establish that,
at the partnership level, Stonehurst was a sham transaction
without profit motive. Hulter v. Commissioner, 91 T.C. 371, 393
(1988); Fox v. Commissioner, 80 T.C. 972, 1006-1008 (1983), affd.
without published opinion 742 F.2d 1441 (2d Cir. 1984), affd. sub
nom. Barnard v. Commissioner, 731 F.2d 230 (4th Cir. 1984), affd.
without published opinions sub nom. Hook v. Commissioner, Kratsa
v. Commissioner, Leffel v. Commissioner, Rosenblatt v.
Commissioner, Zemel v. Commissioner, 734 F.2d 5-7, 9 (3d Cir.
1984); see also Bealor v. Commissioner, T.C. Memo. 1996-435.
This was an issue that was not litigated in Heitzman v.
Commissioner, T.C. Memo. 1987-109, and the record in the case at
hand lacks any direct reference to the economic motives of the
general partner. Wind River had been organized to act as general
partner in Stonehurst, and Freemond had no previous experience in
oil and gas exploration. For purposes of our inquiry, Freemond
and Wind River are shadowy figures, present only in the
Memorandum and later letters chronicling Stonehurst’s dwindling
prospects of finding oil or natural gas and its ultimate demise.
The evidence in the record that Stonehurst was a sham
transaction is circumstantial, and comes from the following
sources: (1) The Stonehurst documentation, (2) the testimony and
report of petitioner’s expert, Charles M. Bowers, and (3) the
testimony of Mr. Heitzman. Our analysis of Stonehurst is also
informed by our report in Osterhout v. Commissioner, T.C. Memo.
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